What does it really take to attract investors to your startup?
Especially for the first-time entrepreneurs out there, a lot of times there tends to be some misconceptions about what it takes to land seed funding for your startup. Presupposing that your founding team does not include guys with massively successful startup pasts (such as founding a YouTube or even a Mint.com), the investor dance can be a challenging one. There are no hard and fast rules for exactly how this all works, but this will give you an idea.
It’s pretty rare that a startup secures significant seed funding from “outside investors” unless one of two things are true:
1) You’re part of “the network”: This doesn’t just mean that you know someone who can introduce you to a top angel or a VC. Really being in the in-crowd so to speak means that you might be a former PayPal employee and built a strong network there, or have lived in San Francisco for years and have become buddies with investors in your space that believe in you as a person.
2) For everyone else, it’s all about traction. Investors want to see that you have a working product you can show them, and even more importantly, that you have people using it and even paying you money for what you have created. Sounds simple, but in reality most startups take a significant investment of time and money before they get to this stage. And even once you get there, it is still an uphill battle demonstrating enough “proof” that you can scale your idea from 1,000 users to 1,000,000.
For young entrepreneurs, another way to try and tackle this problem is to check out seed development programs like YCombinator, TechStars and others. They’re a great way to get in the network and get a small amount of cash to get going. Whether you go this route or not, keep working your butt off, plan for the future and always do everything you can to keep your company afloat while you walk through the fire to the other side!
About the author
Corey Kossack is a Managing Partner at Game Change Ventures, focusing on partnering and consulting with startups in the areas of social media, consumer Internet and e-commerce. Corey is also an Operating Partner at Game Change Ventures’ first Internet startup, Addoway, a social marketplace that helps you buy and sell with your friends and the people they know. Formerly Corey was one of the world’s largest retailers on eBay, built a $1M company from scratch at age 23, has led multiple startups and received numerous awards for his entrepreneurial achievements.
June 30th, 2010 at 3:45 pm
[...] What does it really take to attract investors to your startup? Published: June 29, 2010 Source: StartupNation Blog Especially for the first-time entrepreneurs out there, a lot of times there tends to be some misconceptions about what it takes to land seed funding for your startup. Presupposing that your founding team does n… [...]
July 1st, 2010 at 11:20 am
Thanks for the article. Interesting points. My question is this: Let’s say you have an online software application that performs xyz functions for people. They are using it to a limited degree in beta. Before you speak with VCs about it, is it necessary/desirable to have the application patented? What are the issues surrounding software patents for Internet applications? Have other online companies patented their software before showing it off to the public and/or VC? Any thoughts along these lines would be great. Thanks!
July 1st, 2010 at 11:30 am
Hi Mark,
Thanks for the question. I’m by no means an expert here (or a lawyer for that matter), but here are my thoughts on the subject. The best way to dabble with patenting is to file a provisional patent which allows you to effectively “hold your spot” for the patent for a year before you need to decide if you want to go forward with the full application. This can still be expensive if you go through a patent attorney, but you can also do it really cheaply through sites like Legalzoom, bearing in mind of course that you are not likely to produce a perfect application on your own. All that said, patents are great if you have something that is REALLY protect-able and investors love to see IP, but many things are not that protect-able and investors may not care much about the patent filing if they don’t believe you’ll be able to defend it in the end. Hope that helps.
July 3rd, 2010 at 4:33 pm
It takes registering your startup on http;//startupsacrossamerica.com to help accelerate your access to capital, and restart the engine of economy.
July 4th, 2010 at 2:16 pm
As an 8 year small business and consultant in my business and the SBDC, I can appreciate this article. Weekly I get a client looking for and “angel investor” or venture capitalist, looking for money. One of my normal recommendations I make is for them to view reruns of The Shark Tank. This helps give them an idea of what investor are looking for, their agenda or objectives for possibly investing in their venture. This also gives them a reality check that with the monies invested comes some surrendering of their business that is normally majority interest.
The next recommendation is to create a business plan that they know, is realistic, and has some backing to it.
Sherry Darden
The Business Plan Lady
August 10th, 2012 at 4:54 pm
Ladar Cleaning Service start up
http://www.indiegogo.com/ladarofmistartup
Ladar Cleaning Service is a woman owned and operated Commercial cleaning services. The purpose of this is to help bring in some capital to buy cleaning equipment
September 8th, 2012 at 5:47 pm
I found a good article about funding small businesses and real estate investors. They offer 0% APR, no financials needed, and they really help start-up businesses. The article can be found at - http://bestsitereview.com/moneylending.